Affordability Increasing to 9.02 Percent

by Michelle Cammayo · Sep 10, 2024

In Revenue Procedure , the IRS increased the affordability percentage from 8.39% to 9.02% for 2025.

Background

Under §4980H, applicable large employers (50 or more full-time equivalents or FTEs) must offer full-time employees affordable, minimum value (MV) medical coverage to avoid potential §4980H(b) penalties.

Coverage is considered “affordable” under the §4980H(b) requirements if the employee contribution for the lowest-cost single MV plan satisfies at least one of three available safe harbors (i.e., federal poverty level (FPL), rate of pay, or Form W-2).

In addition, individuals eligible for employer-sponsored group health plan coverage that is affordable will not qualify for a public health Exchange Marketplace tax credit that could potentially trigger an employer penalty. Coverage is generally considered “affordable” if the employee contribution for employee-only (single) coverage does not exceed a set percentage of household income.

Note – The “family glitch” was removed by regulators, so coverage that is affordable to just the employee does not automatically block dependents from public Marketplace tax credits. However, employers do not need to provide affordable coverage for dependents to avoid the §4980H(b) penalty. Only single coverage is evaluated for employers under §4980H(b).

Required Contribution Percentage

Originally, for 2014, the required contribution percentage for determining affordability was set at 9.5%. The percentage is adjusted annually. See applicable percentages for several years in the table below, along with the dollar thresholds for single coverage to be FPL affordable those years.

	2020	2021	2022	2023	2024	2025
Affordability Percentage	9.78%	9.83%	9.61%	9.12%	8.39%	9.02%
FPL Affordability – Calendar Year Plan	$101.79	$104.52	$103.14	$103.28	$101.93	$113.20
FPL Affordability – Non-Calendar Year Plan	$103.99	$105.50	$108.83	$110.80	$105.29	TBD

Application

For calendar year plans, 9.02% applies beginning in January 2025, but for a non-calendar year plan, 9.02% applies with the plan year beginning in 2025.

IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information. This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.